Transcript Slide 1
The Market Today & Business Valuations Kevin Uphill Avondale The Market Avondale SME/mid tier commercial focus. 35 transactions pa. 25 team 3 mentors Organic growth slow driving acquisitions (average 5 bids per project). Fast change driving interest in niche companies with products. www.avondale.co.uk Advanced economies no longer driving global GDP growth Global market percentage change on a year ago 10 Emerging and developing economies 8 6 • 2011 Global economy worth 69,659,626 million US dollars. • The United Kingdom is world’s 7th largest economy. • Over 300,000 companies in UK employ more than 6 people. • 2 billion to 7 billion in 60 years 4 2 World 0 Advanced economies -2 -4 1980 1985 1990 1995 2000 2005 2010 2015 Source: IMF, 3 www.avondale.co.uk UK output- Recovery lagging last two recessions 9 8 7 The UK M&A market Spare capacity increases competitive factors and creates driver for consolidation and Mergers and Acquisitions (M&A) activity. Interest rates low to 2015? 1981 1992 6 5 4 2011 3 Weak credit arena/volatility creating drag. 2 1 0 1 2 3 4 5 6 7 8 9 10 11 Overall 2013 M&A activity (by value) increased on 2012 with Europe most active due to consolidation. Activity down 20% on 2007 but down only 10% in sub £250m arena. 1st qtr 2014 increased on 2013. Motivations Sellers Personal/strategic cross roads Growth in sector House in order Elevator deal Leap of faith Buyers House in order Organic growth slow Create shareholder value Strategic New products/team/services www.avondale.co.uk Valuation Methods Strategic deals + Economies + Synergy + Value influence 1 1 1 Sum 6 www.avondale.co.uk Valuation Methods Discounted cash flow forecast or price earnings multiple of profits Debt free/cash free Adjustments to profits Valuations are financial forecasts to exceed in the process www.avondale.co.uk www.avondale.co.uk Adjusted Balance Sheet Example hire business 31/12/2013 Equipment undervalued £ 50,000 Debt free/cash free £-75,000 Surplus cash negotiate extra to deal for tax savings but be warned buyers will try and include as goodwill, if its there. Debt- Long term liabilities Adjustment to final price £-25,000 Less - Cash www.avondale.co.uk Adjusted Profit & Loss Example Medical Clinic 31/12/2013 Turnover £2,320,000 Gross £1,800,976 Operating Profit £438,000 Forecast Financial value x 4 est. 5.5x £500k = £2.86 ml Adjustments to net profit Rent £130,000 Managers salary/NI £60,000 Directors remuneration (parttime/strategic role) -£150,000 Bank interest £639 Factoring £16,806 Hire purchase interest £3,542 Insurance £21,600 Actual Marketed on Offers 2 bids Offer achieved £4 ml --------------------------------Private Equity backed trade Group UK wide Depreciation real cost hire co Adjusted EBIT under management £520,587 www.avondale.co.uk Deal Structure 1. On Completion £2,000,000 2. Deferred Payment £ 1,000,000 3. Earn out ‘on growth’ £ 1,000,000 4. Total £4,o00,000 Deal structure is a multiple influencer Protections Deferred subject to continued service Charges on shares for deferred Protections business to be run materially same Quality buyer/covenant Access to records Reverse non compete www.avondale.co.uk Strategic Deals Case Studies Type Profit/t/0 Value ROI PE Notes Construction £316,000 Hire Tuition (London) £70,000 pbit £1,900,000 11% 7 £240,000 25% 4 Gateway Ltd £500,000 ebitda £3,500,000 14% 7 Meter Provida £3,600,000 £20,000,000 17 % 6 Updata £5,600,000 £80 million 7% 14.2 Dutch buyer needed UK presence Actually 8 multiple plus as no owner manager costwent to a charity £100 million buyer, looking at new products Rare right buyer again £100 million turnover Recurring revenue Forecasts £12 million Positioning - Modelling - Deal Structure 35% of projects international buyers 2014 www.avondale.co.uk Business Value by Design How much time do you spend on strategy versus management? How do you design a better value business, ahead of the competition? What is your worst envelope? Management Strategy The Profit Engine Company Foundation www.avondale.co.uk